F Frugal Russian shoppers fuel Alibaba global push before IPO

Alibaba Group Holding Ltd., the dominant online shopping platform in China, is tapping demand from the bargain hunters next door as it tries to show potential investors a business model that can succeed abroad.Associated Press

Bloomberg News

Alibaba Group Holding Ltd., the dominant online shopping platform in China, is tapping demand from the bargain hunters next door as it tries to show potential investors a business model that can succeed abroad.

AliExpress, an Alibaba site for users outside China, more than tripled its monthly visitors in Russia to 15.9 million during the past year, vaulting past local Ozon.ru's 8.5 million users and EBay Inc.'s 8.2 million, to become the No. 1 shopping site, according to researcher TNS. AliExpress also broke into the top 10 of most-visited websites in Russia in July.

The surge highlights Alibaba's potential to challenge Amazon.com Inc. and EBay in major markets outside China. Alibaba has found success in Russia, a country of more than 143 million people, by offering lower prices for Chinese products from dresses to car parts while boosting advertising and teaming with local payment providers.

"I can spend several hours looking for goods on the site, and all look so affordable and nice," said Anna Butakova, 27, who runs a bakery in Moscow and shops on AliExpress for baking tools, children's clothes and smartphone cases. "Their assortment is as large as all Russian stores combined."

The average AliExpress order in Russia is about $25, or half that on EBay, according to Moscow-based researcher Data Insight. The Chinese site, which says it shipped 60,000 packages a day to Russia last year, could boost its transactions in the country to as much as $1 billion this year from an estimated $400 million to $500 million last year, Data Insight said.

Free Shipping

Alibaba's variety of inexpensive items is also helping it grow in smaller towns and rural areas, where salaries are lower than in major cities such as Moscow and St. Petersburg.

"The most recent thing I bought on AliExpress was a baby monitor," said Artem Bardizh, 29, an Internet entrepreneur from Yekaterinburg in the Ural mountains who is about to become a father. "Delivery from China took 35 days, but the price is just a quarter of what it costs in Russian offline stores."

Reaching a critical mass of shoppers and product reviews has helped AliExpress win Russians' trust and attract more users to the site, Bardizh said. Most AliExpress merchants offer free shipping to Russia, he said.

"If 1,000 customers posted a good review, there is a 99 percent probability I will be satisfied, too," he said. "Merchants there care about user reviews and can fully refund if someone is unsatisfied."

Butakova said she has gotten several friends hooked on AliExpress despite their previous reservations about the quality of its products.

Brazil, India

Alibaba generates 86 percent of its revenue in China and uses AliExpress for global expansion. AliExpress more than doubled its revenue last fiscal year to about $150 million, making it the fastest-growing business for Alibaba, according to its IPO prospectus.

Revenue growth at the unit was driven by Russia, Brazil, and the U.S.

Russia accounts for 15 percent of AliExpress's audience, according to SimilarWeb. Russia is also the third-largest market by audience for Alibaba's wholesale business after the U.S. and China, with India being another growth market, SimilarWeb data show.

AliExpress today said it hired Mark Zavadskiy as director of business development. To help its Russia expansion, AliExpress has already teamed with local technology companies. In 2012, it began letting users pay with a Qiwi Plc service similar to PayPal, and this year it added Yandex.Money as another payments option. It's also boosting Web advertising through an agreement with Yandex NV, Russia's largest search engine.

Russian billionaires Alisher Usmanov and Yuri Milner are investors in Alibaba, according to their press offices. Their holdings aren't disclosed in the prospectus. Ivan Streshinskiy, head of Usmanov's holding company USM, said in March that investments in Chinese companies including Alibaba may show "the same or even better returns" than earlier investments in Facebook.

Alibaba faces tougher competition for online shoppers in the world's sixth-largest country by Web audience. E-commerce revenue in Russia jumped 28 percent last year to about $16.3 billion and may grow as much as 33 percent in ruble terms this year, according to Data Insight.

EBay plans to speed up cross-border delivery to Russia and let local merchants sell goods on its website starting this month. Ozon raised $150 million from Russia's largest mobile carrier, OAO Mobile TeleSystems, and its parent in April, and will use MTS stores as pickup points for goods ordered online.

Lamoda, an online fashion retailer backed by Germany's Rocket Internet AG, sends deliverymen to homes so customers can try on clothes and get fashion advice.

Florence Shih, a spokeswoman for Alibaba, declined to comment on the company's plans for Russia, citing quiet-period restrictions before its planned IPO.

Alibaba expects to start marketing the IPO in the week of Sept. 8, with tentative pricing on Sept. 18 and trading to start the following day, a person familiar with the matter has said.

It could raise as much as $20 billion, people have said. That would edge past Visa Inc.'s $19.65 billion IPO in 2008 as the largest in U.S. history, according to data compiled by Bloomberg.

After the IPO, Alibaba may announce plans to open a Russian office, Itar-Tass newswire reported last month citing people it didn't identify.

"Russia is such a huge market, it would be natural that Alibaba has its eye on it," said Zhang Zhouping, a Hangzhou- based researcher at the China E-Commerce Research Center.

To contact the reporters on this story: Ilya Khrennikov in Moscow at ikhrennikovbloomberg.net; Lulu Yilun Chen in Hong Kong at ychen447bloomberg.net To contact the editors responsible for this story: Michael Tighe at mtighe4bloomberg.net; Kenneth Wong at kwong11bloomberg.net Ville Heiskanen, Mark Beech

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